Question

P3.7A (LO 3, 4) During the first month of operations, the following transactions occurred for Virmani Architects Inc.: Apr. 1 Invested cash of $10,000 and equipment of $6,000 in the company in exchange for common shares. 1 Hired a secretary-receptionist at a monthly salary of $1,900. 2 Paid office rent for the month, $950. 3 Purchased architectural supplies on account from Halo Ltd., $1,900. 10 Completed blueprints on a carport and billed client $1,200. 13 Received $800 cash advance from a client for the design of a new home. 20 Received $2,500 for services performed for a client 21 Received $600 from the client in partial payment for work completed and billed on April 10. 23 Received April's telephone bill for $135; due May 15. (Hint: Use the Utilities Expense account for telephone services.) 25 Declared and paid $160 of dividends to shareholders. 27 Paid 50% ($950) of the amount owed to Halo Ltd. on account. (See April 3 transaction.) 30 Paid secretary-receptionist for the month, $1,900. 30 Paid monthly income tax instalment, $100. Instructions a. Journalize the transactions. b. Set up Taccounts, post the journal entries to the general ledger, and determine the April 30 balances for each account. c. After the accountant finished journalizing and posting the above transactions, he complained that this process took too much time. He thought it would be more efficient to omit the journal entry step in the accounting cycle and record the transactions directly in the general ledger. Explain to the accountant whether you think this is a good idea or not, and why.

Answer 1

ANSWER (a)

JOURNAL ENTRY

DATE	DETIALS	DEBIT	CREDIT
APR.1	CASH	10000
	EQUIPMENT	6000
	EQUITY SHAREHOLDER		16000
	(BUSINESS STARTED WITH CASH AND EQUIPMENT IN RETURN COMMON STOCK ISSUED)
1	NO ENTRY
	(NO TRANSACTION TOOK PLACED JUST HIRING IS DONE)
2	OFFICE RENT EXPENSE	950
	CASH		950
	(RENT PAID FOR THE MONTH)
3	SUPPLIES	1900
	ACCOUNT PAYABLE		1900
	(SUPPLIES PURCHASED FROM HALO LTD ON CREDIT)
10	ACCOUNT RECEIVABLE	1200
	REVENUE		1200
	(CLIENT WORK IS DONE AND HE IS BILLED)
13	CASH	800
	UNEARNED REVENUE		800
	(PAYMENT RECEIVED IN ADAVANCE)
20	CASH	2500
	REVENUE		2500
	(PAYEMENT OF WORK RECEIVED)
21	CASH	600
	ACCOUNT RECEIVABLE		600
	(PARTIAL PAYMENT RECEIVED FROM A CLIET WHO WAS BILLED ON APR,10)
23	UTILITIES EXPENSE	135
	ACCOUNT PAYABLE		135
	(TELEPHONE EXPENSE RECORED)
25	DIVIDEND	160
	CASH		160
	(DIVIDEND PAID)
27	ACCOUNT PAYABLE	950
	CASH		950
	(CREDITORS BEING PAID)
30	SALARY EXPENSE	1900
	CASH		1900
30	TAX EXPENSE	100
	CASH		100

LEDGERS

CASH

APR 1	EQUITY SHAREHOLDER	10000	APR 2	OFFICE RENT EXPENSE	950
APR 13	UNEARNED REVENUE	800	APR 25	DIVIDEND	160
APR 20	REVENUE	2500	APR 27	ACCOUNT PAYABLE	950
APR 21	ACCOUNT RECEIVABLE	600	APR30	SALARY EXPENSE	1900
			APR 30	TAX EXPENSE	100
			APR 30	BALANCE C/D	9840
		13900			13900

EQUIPMENT

APR 1

EQUITY SHAREHOLDER

6000

APR 30

BALANCE C/D

6000

EQUITY SHAREHOLDER

APR 30	BALANCE C/D	16000	APR 1	CASH	10000
				EQUIPMENT	6000
		16000			16000

OFFICE RENT EXPENSE

APR.2

CASH

950

APR.30

PROFIT & LOSS

950

SUPPLIES

APR 3

ACCOUNTS PAYABLE

1900

APR 30

BALANCE C/D

1900

ACCOUNT PAYABLE

APR 27	CASH	950	APR 3	SUPPLIES	1900
APR 30	BALANCE C/D	1900	APR 23	UTILITIES EXPENSE	950
		2850			2850

ACCOUNT RECEIAVLE

APR 10	REVENUE	1200	APR 21	CASH	600
			APR 30	BALANCE C/D	600
		1200			1200

REVENUE

APR 30	PROFIT &LOSS	3700	APR10	ACCOUNT RECEIVABLE	1200
			APR 25	CASH	2500
		3700			3700

UNEARNED REVENUE

APR 30

BALANCE C/D

800

APR 13

CASH

800

DIVIDEND

APR 25

CASH

160

APR 30

P&L APPROPRIATION

160

UTILITIES EXPENSE

APR 23

ACCOUNT PAYABLE

950

APR 30

PROFIT & LOSS

950

SALARY EXPENSE

APR 30

CASH

1900

APR 30

PROFIT & LOSS

1900

TAX EXPENSE

APR 30

CASH

100

APR 30

PROFIT & LOSS

100

ANSWER (c)

IT IS BAD IDEA BECAUSE WITH JOURNAL ENTRY WE GET THE SOURCE OF VOCHER THAT WHERE THAT ENTRY IS STARTED WE GET THAT IN NARRATION ,IF WE OMIT THE JOURNAL ENTRY THEN WE WON'T GET SOURCE INFORMATION